Doomed Economics

Reporting on NYU economist Nouriel Roubini’s latest recommendation for Europe, you quote the professor: “The German government should give every German household a 1000 euro ($1,250) travel voucher. However, it should only be used for holidays in crisis countries. That will help boost growth there” (“Roubini Tells Europe to Stop ‘the Savings Madness’[2],” June 12).

Prof. Roubini’s advice reveals the intellectual bankruptcy of the vulgar Keynesian thinking that is always widespread in the popular media and that is now, sadly, resurrected in the academy. It’s the unreflective businessman’s economic algorithm: ‘the key to my success is higher demand for my output; therefore, the key to the economy’s success is higher demand for the economy’s output.’ Period. Little thought is given to the complex institutional details that in fact are the keys to sustained and widespread economic growth. Are markets sufficiently free to set prices that accurately reflect resource scarcities? Are property rights sufficiently secure to encourage long-term investment? Are monetary and fiscal policies sufficiently prudent so as not to discourage households, entrepreneurs, and investors from making sensible plans over appropriate time horizons? And as Deirdre McCloskey asks[3], does the culture encourage commerce and innovation by adequately dignifying the bourgeoisie?

Rather than do the hard work of dealing with deep and all-important issues such as these, the vulgar Keynesian focuses on a superficiality – adequate ‘aggregate demand’ – and then fancies himself a clever and profound thinker for recommending that this consequence of economic health be treated as if it were economic-health’s chief cause.